Publications

Many states are taking action on climate change by paying zero- and low-emitting electricity generators for avoiding the emissions that fossil-fuel-fired resources would otherwise emit. These “externality payments” help level the playing field between emitting and non-emitting generators. Critics of these policies argue that these payments might negatively affect the efficiency of wholesale electricity markets by reducing capacity prices, which heavily affect how generators enter and exit the market. Our report shows why the premises underlying recent reforms, which seek to shield capacity markets from the potential price impact of pollution externality payments, are flawed.

Many policymakers assume that increasing deployment of energy storage will automatically reduce greenhouse gas emissions, in part by helping to integrate renewable energy resources with intermittent and variable generation. This report explores situations in which energy storage systems can in fact lead to increased emissions, and offers reforms to correct for poor incentives while ensuring that energy storage can provide the maximum benefit possible to the grid.

How to Monetize Greenhouse Gas and Local Air Pollutant Reductions from Distributed Energy Resources

By Jeffrey Shrader, Burcin Unel, and Avi ZevinMarch 23, 2018

Distributed energy resources (DERs)—grid-connected, small-scale electric generators such as rooftop solar installations, micro-turbines, combined heat and power systems, customer backup generators, and distributed energy storage systems—are a growing part of the U.S. electric system. They can help avoid the high levels of greenhouse gases and local air pollution produced by traditional energy sources. As their use grows, state electric utility regulators are seeking to compensate DERs accurately for the benefits they offer, including reductions in pollution that contributes to climate change and harms human health. This report shows how regulators can calculate the types and amount of pollution avoided, and then monetize these benefits for use in policy.

States can benefit from using the social cost of greenhouse gases to aid in making rational policy decisions in a transparent manner. Many states are already using these metrics in their decisionmaking. This report provides information on several issues related to the social cost of greenhouse gases, including discount rates, time horizons, and the global nature of the estimate.

In 2015, the U.S. Environmental Protection Agency (EPA) released the Clean Power Plan, a Clean Air Act rule designed to address the threat of climate change by cutting carbon dioxide emissions from fossil fuel-fired power plants. As part of that rulemaking, the agency prepared an estimate of compliance costs, which it found would be far outweighed by the rule’s climate and health benefits. Since that time, changes in the electric sector have made it even cheaper to meet the rule’s emission targets than EPA anticipated. This report summarizes the findings of EPA’s 2015 Regulatory Impact Analysis; discusses subsequent market and policy developments that have lowered the cost of complying with the Clean Power Plan; and surveys more recent analyses by independent groups, which have estimated substantially lower compliance costs than EPA did.